GOOD CORPORATE GOVERNANCE
The revelations made by Cyrus Mistry, ex-Chairman, Tata Sons (letter dated October 25, 2016) immediately following his dismissal point towards a new low in corporate governance in India.
If it can happen in one of India’s leading conglomerates which has a turnover of close to Rs 7,00,000 crores, market capitalisation of Rs 8,50,000 crores, operations in more than 100 countries and has about 7,00,000 employees on its rolls, this speaks volumes about the extent of degeneration that has set in corporate board rooms.
What is so disconcerting about the recent events at Bombay House? The most worrying point is the brazen muscle-flexing by Tata family-owned trusts (they have 66% share in Tata Sons) which reduced its head to a defunct status of, what Cyrus described, a ‘lame duck’ chairman. This was done to a person on whom they had showered praise only a few months ago and given a handsome salary hike.
In his letter, Cyrus has alleged that some directors of Tata Sons used to leave in the middle of board meeting to consult Ratan Tata and deliberations were stuck till they came back. This shows the extent of interference in functioning of the board. He has given umpteen examples of how he was presented with fait accompli on projects like AirAsia and Vistara Airlines, not being allowed to get out of Nano despite persistent losses, purchase of real estate property at inflated prices, unsuccessful foray into telecommunication (and mishandling of issues with foreign partner NTT-DoCoMo), mess-ups in the power sector etc.
At another level, his review of past decisions (taken under the Ratan Tata dispensation) such as buy-out of Corus Group (2007) and attempts to reduce unsustainable high levels of debt, were viewed as tantamount to working out of sync with the ‘ethos’ and ‘culture’ of the group or losing the trust of owners.
The manner of Cyrus’ removal was in serious contravention of governance norms. It was done under ‘any other item’ in the agenda of Tata Sons board meeting (October 24, 2016). An issue that concerns the fate of the chairman – a person who has an onerous responsibility of shepherding all group companies towards their stated goals – is much too important (even more than a major policy decision or approving a project) to be dumped on a residual head.
Yet, it was kept under wraps till the last moment and made its way in a surreptitious manner in utter disregard of transparency in the decision-making process. What makes it even more appalling is that the outgoing chairman was not even given an opportunity to defend himself; a flagrant violation of the principle of natural justice!
Upon being appointed as chairman of Tata Sons in 2012, Cyrus was also made chairman of all key group companies – Tata Consultancy Services (TCS), Tata Motors, Tata Steel, Tata Chemicals, Tata Global Beverages (TGBL), Tata Power, India Hotels etc – in line with the established convention. After his removal from Tata Sons, an orchestrated game plan is now underway to remove him from all mentioned companies.
Here again, ‘transparency’ and ‘acco-untability’ – the main pillars of good governance – are being held hostage to the whims and fancies of a select few. The ‘any other item on agenda’ stroke was played out in a recent board meeting of TGBL. The meeting held to discuss its financial results (sole item on the agenda) instead voted on removal of the very person (Cyrus) who was presiding over it!
In some companies, such as Tata Chemicals and India Hotels, Cyrus has continued to remain at the helm. This is because in their board meetings, ‘independent directors’ were focused on substantive issues, and they assessed his work/performance ‘objectively’ on merit and came out strongly in his support. But, this is only a temporary reprieve as promoters have other ways of circumventing them.
Already, they have ordered group companies to convene extraordinary general meetings (EGM) to remove him as director from their respective boards. In the case of TCS, in which Tata Sons holds 75% of shares, this may be a foregone conclusion. But, in all others, where promoter’s holding is 30-35%, they would need the help of domestic institutions such as the Life Insurance Corporation of India (LIC).
Delayed post-mortem
In the wake of Cyrus’s letter bomb, the Securities Exchange Board of India (Sebi) and concerned ministries viz., steel, civil aviation etc are looking into his allegations, including charges of dubious investment decisions and financial irregularities. That sounds like doing a post-mortem after the patient is dead. It will do no good to restore their health nor help in observance of good governance norms.
Much of the damage due to so-called ‘legacy issues’ could have been avoided if only nominees of the LIC and other institutions had acted in a responsible manner and made corrective interventions to protect the interests of shareholders. Now, when Cyrus is taking all the right steps to address those issues and delivering as well (since 2012, market capitalisation of Tata group has nearly doubled), they need to throw their weight behind him.
True, within Tata Sons – a closely held group – there is little that they can do to prevent changes (albeit undesirable) in its management. But, this does not hold for individual companies (sans TCS) where promoters are in minority. In all these, they should act strictly on merit and not be swayed by what the single largest shareholder wants.
Banks and institutions need to be alert in hundreds of other corporate board rooms to ensure autonomy of their functioning, prevent interference by promoters and ensure full compliance with best governance practices. Sebi and other regulators, such as the enforcement directorate (ED), should be eternally vigilant to nip any wrongdoing/financial irregularity in the bud. The events at Bombay House should be taken as a wake-up call to prevent the malaise from spreading further.
(The writer is a New Delhi-based policy analyst)
http://www.deccanherald.com/content/582544/crippled-bombay-house.html